You may pay several thousand dollars in “points” to get the lender to give you a mortgage. While points are not added to your tax basis, they may be currently deductible interest.
The parents reduced their taxable income by $2,000 by paying the points on a home purchase. Since the parents income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $600 ($2,000 x 30%).
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by paying and deducting the points on a home purchase.